Lacking a physical or material nature but relating to or affecting a body.
Under Common Law, incorporeal property were rights that affected a tangible item, such as a chose
in action (a right to enforce a debt).
Incorporeal is the opposite of corporeal, a description of the existence of a tangible item.
Possessing a physical nature; having an objective, tangible existence; being capable of perception by
touch and sight.
Under Common Law, corporeal hereditaments are physical objects encompassed in land, including
the land itself and any tangible object on it, that can be inherited.
Corporeal is the opposite of incorporeal, that which exists but is incapable of physical manifestation,
as in the right to bring a lawsuit.
Section 53A in The Transfer Of Property Act, 1882
53A. 1[ Part performance.- Where any person contracts to transfer for consideration any
immoveable property by writing signed by him or on his behalf from which the terms necessary to
constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part
performance of the contract, taken possession of the property or any part thereof, or the transferee,
being already in possession, continues in possession in part performance of the contract and has
done some act in furtherance of the contract, and the transferee has performed or is willing to
perform his part of the contract, then, notwithstanding that the contract, though required to be
registered, has not been registered, or, where there is an instrument of transfer, that the transfer
has not been completed in the manner prescribed therefor by the law for the time being in force,
the transferor or any person claiming under him shall be debarred from enforcing against the
transferee and persons claiming under him any right in respect of the property of which the
transferee has taken or continued in possession, other than a right expressly provided by the terms
of the contract: Provided that nothing in this section shall affect the rights of a transferee for
consideration who has no notice of the contract or of the part performance thereof.] CHAPTER III OF
SALES OF IMMOVEABLE PROPERTY CHAPTER III OF SALES OF IMMOVEABLE PROPERTY
Concept Of Liquidation
A company is an artificial person created by law and the law alone can dissolve it. The legal
procedure by which the corporate life of a company brought to an end is known as liquidation. The
liquidation of company may be defined as " the termination of legal existence of company by closing
its business". Liquidation is also termed as winding-up a company.
The process of winding-up of a company is completed by selling all its assets and paying all creditors
in preferential orders. For this purpose, a liquidator is appointed by the court to complete the
liquidation process.The duties of the liquidator are to realize the assets, discharge the liabilities and
distribute the surplus, if any, to the shareholders of the company.
One thing here should be noted that liquidation and bankrupt of a company is not the same thing. A
company which is liquidated need not necessarily bankrupt. Sometimes even in terms of sound
financial position, a company may be proposed to be liquidation. Thus, for liquidation, it is not
necessary to be bankrupt. But bankrupt will certainly lead to liquidation.
Reasons For Failure Of Business or Liquidation
A company may be dissolved for several reasons. Some of them are:
1. No visionary management
2. Day by day increasing debt and inability to pay it.
3. Unnecessary fictitious assets raising in accounts
4. Involvement of company in fraudulent activities
5. Exploitation of minority shareholders
6. High level competition in the market
7. Frequent change in the government policies
8. Absence of profit planning control and continuity of losses for several years.
Partial and Full Partition of Hindu Undivided Family (HUF) and Income Tax provisions Meaning of
Partition: - Partition is the severance of the status of Joint Hindu Family, known as Hindu Undivided
Family under tax laws. Under Hindu Law once the status of Hindu Family is put to an end, there is
notional division of properties among the members and the joint ownership of property comes to an
end. However, for an effective partition, it is not necessary to divide the properties in metes and
bounds. But under tax laws for an effective partition division by metes and bounds is necessary.
Partition under Hindu Law, can be total or partial. In total partition all the members cease to be
members of the HUF and all the properties cease to be properties belonging to the said HUF.
Partition could be partial also. It may be partial vis-a-vis members, where some of the members go
out on partition and other members continue to be the members of the family. It may be partial vis-
a-vis properties where, some of the properties, are divided among the members other properties
continue to be HUF properties. Partial partition may be partial vis-a-vis properties and members
Metes and Bounds
The boundary lines of land, with their terminal points and angles. A way of describing land by listing
the compass directions and distances of the boundaries. It is often used in connection with the
Government Survey System.
metes and bounds (meets and bounds) n. a surveyor's description of a parcel of real property, using
carefully measured distances, angles, and directions, which results in what is called a "legal
description" of the land, as distinguished from merely a street address or parcel number. Such a
metes and bounds description is required to be recorded in official county record on a subdivision
map and in the deeds when the boundaries of a parcel or lot are first drawn.
Definition of 'Irrevocable Trust'
A trust that can't be modified or terminated without the permission of the beneficiary. The donor,
having transferred assets into the trust, effectively removes all of his or her rights of ownership to
the assets and the trust.
This is the opposite of a "revocable trust," which allows the donor to modify the trust.
A holding company is a parent company that owns enough voting stock(more than 50%) in a
subsidiary to make management decisions , influence and contorl the company's board of directors.
However, holding companies that control 80% or more of the subsidiary's voting stock gain the
benefits of tax consolidation, which include tax-free dividends for the parent company and the ability
to share operating losses.
Subsidiary Company :
A subsidiary is a company that is controlled by a holding company or parent; this means at least 50%
of its stock is controlled by another company. This 50% or greater stake gives the parent company
Legal Definitions As per as per Companies Act, 1956 :
Indian Company :
Section 2(26)- “Indian company” means a company formed and registered under the Companies Act,
1956 (1 of 1956), and includes-
(i) a company formed and registered under any law relating to companies formerly in force in any
part of India (other than the State of Jammu and Kashmir and the Union territories specified in
sub-clause (iii) of this clause);
(ia) a corporation established by or under a Central, State or Provincial Act;
(ib) any institution, association or body which is declared by the Board to be a company under
clause (17) *** ;
(ii) in the case of the State of Jammu and Kashmir, a company formed and registered under any
law for the time being in force in that State;
(iii) in the case of any of the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu, and
Pondicherry, a company formed and registered under any law for the time being in force in that
Provided that the registered or, as the case may be, principal office of the company, corporation,
institution, association or body in all cases is in India;
*** Section 2(17) “company” means-
(i) any Indian company, or
(ii) any body corporate incorporated by or under the law of a country outside India, or
any institution, association or body which is or was assessable or was assessed as a company for
any assessment year under the Indian Income-tax Act, 1922 (11 of 1922), or which is or was
assessable or was assessed under this Act as a company for any assessment year commencing
on or before the 1st
day of April, 1970, or
any institution, association or body, whether incorporated or not and whether Indian or non-
Indian, which is declared by general or special order of the Board to be a company:
Provided that such institution, association or body shall be deemed to be a company only for such
assessment year or assessment years (whether commencing before the 1st
day of April, 1971, or on or
after that date) as may be specified in the declaration;
Foreign company :
Section 2(23A) -“foreign company” means a company which is not a domestic company
Definitions as per Companies Act, 1956 :
Meaning of holding company” and “subsidiary”
Section 4 –
(1) For the purposes of this Act, a company shall, subject to the provisions of sub-section (3), be
deemed to be a subsidiary of another if, but only if,-
(a) that other controls the composition of its Board of directors; or
that the other exercises or controls more than one-half of its total voting power in a case
where it has issued securities and such securities have the same voting rights as equity
(c) that the other holds more than one-half in value of its paid-up capital, in any other case;
No company which is a subsidiary of another company shall, after the commencement of the
Companies (Amendment) Act, 2003, become a holding company;
For the purposes of sub-section (1), the composition of a company’s Board of directors shall be
deemed to be controlled by another company if, but only if, that other company by the
exercise of some power exercisable by it at its discretion without the consent or concurrence
of any other person, can appoint or remove the holders of all or a majority of the
directorships; but for the purposes of this provision that other company shall be deemed to
have power to appoint to a directorship with respect to which any of the following conditions
is satisfied, that is to say-
that a person cannot be appointed thereto without the exercise in his favour by that other
company of such a power as aforesaid;
that a person’s appointment thereto follows necessarily from his appointment as director
or manager of, or to any other office or employment in, that other company, or
that the directorship is held by an individual nominated by that other company or
a subsidiary thereof.
(3) In determining whether one company is a subsidiary of another-
any shared held or power exercisable by that other company in a fiduciary capacity shall
be treated as not held or exercisable by it;
(b) subject to the provisions of clauses (c) and (d), any shares held or power exercisable –
by any person as a nominee for that other company (except where that other is
concerned only a fiduciary capacity); or
by, or by a nominee for, a subsidiary of that other company, not being
a subsidiary which is concerned only in a fiduciary capacity;
shall be treated as held or exercisable by that other company;
any shares held or power exercisable by any person by virtue of the provisions of any
debentures of the first-mentioned company or of a trust deed for securing any issue of
such debentures shall be disregarded;
any shares held or power exercisable by, or by a nominee for, that other or
its subsidiary not being held or exercisable as mentioned in clause(c) shall be treated as
not held or exercisable by that other, if the ordinary business of that other or
its subsidiary, as the case may be, includes the lending of money and the shares are held
or the power is exercisable as foresaid by way of security only for the purposes of a
transaction entered into in the ordinary course of that business.
For the purposes of this Act, a company shall be deemed to be the holding company of
another if, but only, if that other is its subsidiary.
In this section, the expression “company” includes any body corporate, and the expression
“equity share capital” has the same meaning as in sub-section (2) of section 85.
In the case of a body corporate which is incorporated in a country outside India,
a subsidiary or holding company of the body corporate under the law of such country shall be
deemed to be a subsidiary or holding company of the body corporate within the meaning and
for the purposes of this Act also, whether the requirements of this section are fulfilled or not.
A private company, being a subsidiary of a body corporate incorporated outside India, which,
if incorporated in India, would be a public company within the meaning of this Act, shall be
deemed for the purposes of this Act to be a subsidiary of a public company if not less than
ninety-nine per cent. of the share capital in that private company is not held by that body
corporate whether alone or together with one or more other bodies corporate incorporated
[(1B)] "amalgamation", in relation to companies, means the merger of one or more companies
with another company or the merger of two or more companies to form one company (the company
or companies which so merge being referred to as the amalgamating company or companies and the
company with which they merge or which is formed as a result of the merger, as the amalgamated
company) in such a manner that—
(i) all the property of the amalgamating company or companies immediately before
the amalgamation becomes the property of the amalgamated company by virtue of
the amalgamation ;
(ii) all the liabilities of the amalgamating company or companies immediately before
the amalgamation become the liabilities of the amalgamated company by virtue of
the amalgamation ;
(iii) shareholders holding not less than 18
[three-fourths] in value of the shares in the amalgamating
company or companies (other than shares already held therein immediately before
the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become
shareholders of the amalgamated company by virtue of the amalgamation,
otherwise than as a result of the acquisition of the property of one company by another company
pursuant to the purchase of such property by the other company or as a result of the distribution of
such property to the other company after the winding up of the first-mentioned company ;]
[(19AA) "demerger", in relation to companies, means the transfer, pursuant to a scheme of
arrangement under sections 391 to 39483
of the Companies Act, 1956 (1 of 1956), by a demerged
company of its one or more undertakings to any resulting company in such a manner that—
(i) all the property of the undertaking, being transferred by the demerged company, immediately
before the demerger, becomes the property of the resulting company by virtue of the demerger;
(ii) all the liabilities relatable to the undertaking, being transferred by the demerged company,
immediately before the demerger, become the liabilities of the resulting company by virtue of the
(iii) the property and the liabilities of the undertaking or undertakings being transferred by the
demerged company are transferred at values appearing in its books of account immediately before
(iv) the resulting company issues, in consideration of the demerger, its shares to the shareholders of
the demerged company on a proportionate basis 84
[except where the resulting company itself is a
shareholder of the demerged company];
(v) the shareholders holding not less than three-fourths in value of the shares in the demerged
company (other than shares already held therein immediately before the demerger, or by a nominee
for, the resulting company or, its subsidiary) become share-holders of the resulting company or
companies by virtue of the demerger,
otherwise than as a result of the acquisition of the property or assets of the demerged company or
any undertaking thereof by the resulting company;
(vi) the transfer of the undertaking is on a going concern basis;
(vii) the demerger is in accordance with the conditions, if any, notified under sub-section (5)
of section 72A by the Central Government in this behalf.
Explanation 1.—For the purposes of this clause, "undertaking" shall include any part of an
undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does
not include individual assets or liabilities or any combination thereof not constituting a business
Explanation 2.—For the purposes of this clause, the liabilities referred to in sub-clause (ii), shall
(a) the liabilities which arise out of the activities or operations of the undertaking;
(b) the specific loans or borrowings (including debentures) raised, incurred and utilised solely for the
activities or operations of the undertaking; and
(c) in cases, other than those referred to in clause (a) or clause (b), so much of the amounts of
general or multipurpose borrowings, if any, of the demerged company as stand in the same
proportion which the value of the assets transferred in a demerger bears to the total value of the
assets of such demerged company immediately before the demerger.
Explanation 3.—For determining the value of the property referred to in sub-clause (iii), any change
in the value of assets consequent to their revaluation shall be ignored.
Explanation 4.—For the purposes of this clause, the splitting up or the reconstruction of any
authority or a body constituted or established under a Central, State or Provincial Act, or a local
authority or a public sector company, into separate authorities or bodies or local authorities or
companies, as the case may be, shall be deemed to be a demerger if such split up or reconstruction
[such conditions as may be notified in the Official Gazette86
, by the Central Government];
(19AAA) "demerged company" means the company whose undertaking is transferred, pursuant to a
demerger, to a resulting company;]
WHAT IS DIFFERENCE BETWEEN MERGER AND AMALGAMATION?
Merger and Amalgamation basically carry a same meaning. But talking in strict sense the both words
have a minor difference.
a. Merger is mostly used for the fusion of two companies whereas Amalgamation is used as
Arrangement or compromise of two or more companies. The main objective of amalgamation is to
bring assets of two or more companies under control of one which may or may not be the original
b. Merger is used in narrow sense and Amalgamation is used in boarder sense. Merger is the fusion
of two or more companies whereas amalgamation can be result in organic unification or amalgam
of two or more legal entities or undertaking or arrangement or reconstruction or a fusion of one
with the other. There is no restriction or bar upon number of company amalgamating under one
C. Merger is restricted to a case where the assets and liabilities of the companies get vested in
another company, the company which is merged losing its identity and its shareholders become
shareholders of the transferee company which may or may not the original one. On the other hand,
amalgamation is an arrangement, whereby the assets and liabilities of two or more companies
become vested in another company (which may or may not be one of the original companies) and
which would have as its shareholders substantially, all the shareholders of the amalgamating
In more simple words Amalgamation means A Ltd + B Ltd = C Ltd or A Ltd.
Merger = “Centurion bank of Punjab” is merge with “HDFC bank”
Amalgamation = Nirma and core health care.
1. Merger and Amalgamation basically carry same meaning. There is no major difference between
these two words.
2. From view point of Company law, 1956, both the words used as synonyms. In fact the word
amalgamation is not defined in Company Act, 1956.
3. Merger is used in Narrow sense and Amalgamation is used is Board Sense.
4. The word "merger" or "amalgamation" means combining of two or more companies into one
5. The word Amalgamation has no legal meaning. It weigh up a state of things under which two
companies are so joined as to form a third company, or we can say one company is absorbed into
and blended with another company.
Q. What are Bonds?
A. A bond is a debt security, by which you are lending money to a government, municipality,
corporation, or other entity known as the issuer.
In return for the loan, the issuer promises to pay you a specified rate of interest during the life of the
bond and to repay the face value of the bond (the principal) when it matures or becomes due.
Q. What is a Debenture?
A. A Debenture is a debt security issued by a company (called the Issuer), which offers to pay
interest in lieu of the money borrowed for a certain period. In essence it represents a loan taken by
the issuer who pays an agreed rate of interest during the lifetime of the instrument and repays the
principal normally, unless otherwise agreed, on maturity. These are long-term debt instruments
issued by private sector companies. These are issued in denominations as low as Rs 1000 and have
maturities ranging between one and ten years.
Q. What is the difference between a bond and a debenture?
A. Long-term debt securities issued by the Government of India or any of the State Government’s or
undertakings owned by them or by development financial institutions are called as bonds.
Instruments issued by other entities are called debentures. The difference between the two is
actually a function of where they are registered and pay stamp duty and how they trade.
Recognized Stock exchange, mutualisation, corporatization, etc. As per SECURITIES CONTRACTS
(REGULATION) ACT, 1956
2. In this Act, unless the context otherwise requires,—
(a) “contract” means a contract for or relating to the purchase or sale of securities;
3 [(aa) “corporatisation” means the succession of a recognised stock exchange, being a
body of individuals or a society registered under the Societies Registration Act,
1860 (21 of 1860), by another stock exchange, being a company incorporated for
the purpose of assisting, regulating or controlling the business of buying, selling
or dealing in securities carried on by such individuals or society;
(ab) “demutualisation” means the segregation of ownership and management from the
trading rights of the members of a recognised stock exchange in accordance with
a scheme approved by the Securities and Exchange Board of India;]
(f) “recognised stock exchange” means a stock exchange which is for the time being
recognised by the Central Government under section 4;
Grant of recognition to stock exchanges.
4. (1) If the Central Government is satisfied, after making such inquiry as may be
necessary in this behalf and after obtaining such further information, if any, as it may
(a) that the rules and bye-laws of a stock exchange applying for registration are in
conformity with such conditions as may be prescribed with a view to ensure fair
dealing and to protect investors;
(b) that the stock exchange is willing to comply with any other conditions (including
conditions as to the number of members) which the Central Government, after
consultation with the governing body of the stock exchange and having regard to
the area served by the stock exchange and its standing and the nature of the
securities dealt with by it, may impose for the purpose of carrying out the objects
of this Act; and
15 Inserted by Act 32 of 1999, S. 3 (w.e.f. 16-12-1999).
(c) that it would be in the interest of the trade and also in the public interest to grant
recognition to the stock exchange;
it may grant recognition to the stock exchange subject to the conditions imposed upon it
as aforesaid and in such form as may be prescribed.
(2) The conditions which the Central Government may prescribe under clause (a) of subsection
(1) for the grant of recognition to the stock exchanges may include, among other
matters, conditions relating to,—
(i) the qualifications for membership of stock exchanges;
(ii) the manner in which contracts shall be entered into and enforced as between
(iii) the representation of the Central Government on each of the stock exchange by
such number of persons not exceeding three as the Central Government may
nominate in this behalf; and
(iv) the maintenance of accounts of members and their audit by chartered accountants
whenever such audit is required by the Central Government.
(3) Every grant of recognition to a stock exchange under this section shall be published in
the Gazette of India and also in the Official Gazette of the State in which the principal
office as of the stock exchange is situate, and such recognition shall have effect as from
the date of its publication in the Gazette of India.
(4) No application for the grant of recognition shall be refused except after giving an
opportunity to the stock exchange concerned to be heard in the matter; and the reasons
for such refusal shall be communicated to the stock exchange in writing.
(5) No rules of a recognised stock exchange relating to any of the matters specified in
sub-section (2) of section 3 shall be amended except with the approval of the Central
16[Corporatisation and demutualisation of stock exchanges.
4A. On and from the appointed date, all recognised stock exchanges (if not corporatised
and demutualised before the appointed date) shall be corporatised and demutualised in
accordance with the provisions contained in section 4B:
Provided that the Securities and Exchange Board of India may, if it is satisfied that any
recognised stock exchange was prevented by sufficient cause from being corporatised
and demutualised on or after the appointed date, specify another appointed date in respect
of that recognised stock exchange and such recognised stock exchange may continue as
such before such appointed date.
Explanation.— For the purposes of this section, “appointed date” means the date which
the Securities and Exchange Board of India may, by notification in the Official Gazette,
appoint and different appointed dates may be appointed for different recognised stock
16 Inserted by the Securities Laws (Amendment) Act, 2004, S.3 (w.e.f. 12-10-2004).
Procedure for corporatisation and demutualisation.
4B. (1) All recognised stock exchanges referred to in section 4A shall, within such time
asmay be specified by the Securities and Exchange Board of India, submit a scheme for
corporatisation and demutualisation for its approval:
Provided that the Securities and Exchange Board of India, may, by notification in the
Official Gazette, specify name of the recognised stock exchange, which had already been
corporatised and demutualised, and such stock exchange shall not be required to submit
the scheme under this section.
(2) On receipt of the scheme referred to in sub-section (1), the Securities and Exchange
Board of India may, after making such enquiry as may be necessary in this behalf and
obtaining such further information, if any, as it may require and if it is satisfied that it
would be in the interest of the trade and also in the public interest, approve the scheme
with or without modification.
(3) No scheme under sub-section (2) shall be approved by the Securities and Exchange
Board of India if the issue of shares for a lawful consideration or provision of trading
rights in lieu of membership card of the members of a recognised stock exchange or
payment of dividends to members have been proposed out of any reserves or assets of
that stock exchange.
(4) Where the scheme is approved under sub-section (2), the scheme so approved shall be
published immediately by—
(a) the Securities and Exchange Board of India in the Official Gazette;
(b) the recognised stock exchange in such two daily newspapers circulating in India, as
may be specified by the Securities and Exchange Board of India,
and upon such publication, notwithstanding anything to the contrary contained in this Act
or any other law for the time being in force or any agreement, award, judgment, decree or
other instrument for the time being in force, the scheme shall have effect and be binding
on all persons and authorities including all members, creditors, depositors and employees
of the recognised stock exchange and on all persons having any contract, right, power,
obligation or liability with, against, over, to, or in connection with, the recognised stock
exchange or its members.
(5) Where the Securities and Exchange Board of India is satisfied that it would not be in
the interest of the trade and also in the public interest to approve the scheme under subsection
(2), it may, by an order, reject the scheme and such order of rejection shall be
published by it in the Official Gazette:
Provided that the Securities and Exchange Board of India shall give a reasonable
opportunity of being heard to all the persons concerned and the recognised stock
exchange concerned before passing an order rejecting the scheme.
(6) The Securities and Exchange Board of India may, while approving the scheme under
sub-section (2), by an order in writing, restrict—
(a) the voting rights of the shareholders who are also stock brokers of the recognised
(b) the right of shareholders or a stock broker of the recognised stock exchange to
appoint the representatives on the governing board of the stock exchange;
(c) the maximum number of representatives of the stock brokers of the recognised
stock exchange to be appointed on the governing board of the recognised stock
exchange, which shall not exceed one-fourth of the total strength of the governing
(7) The order made under sub-section (6) shall be published in the Official Gazette and
on the publication thereof, the order shall, notwithstanding anything to the contrary
contained in the Companies Act, 1956 (1 of 1956), or any other law for the time being in
force, have full effect.
(8) Every recognised stock exchange, in respect of which the scheme for corporatisation
or demutualisation has been approved under sub-section (2), shall, either by fresh issue of
equity shares to the public or in any other manner as may be specified by the regulations
made by the Securities and Exchange Board of India, ensure that at least fifty-one per
cent of its equity share capital is held, within twelve months from the date of publication
of the order under sub-section (7), by the public other than shareholders having trading
Provided that the Securities and Exchange Board of India may, on sufficient cause being
shown to it and in the public interest, extend the said period by another twelve months.]
A GLOBAL DEPOSITORY RECEIPT OR GLOBAL DEPOSITARY RECEIPT (GDR) is a certificate issued by
a depository bank, which purchases shares of foreign companies and deposits it on the account.
GDRs represent ownership of an underlying number of shares.
Global depository receipts facilitate trade of shares, and are commonly used to invest in companies
from developing oremerging markets.
Prices of global depositary receipt are often close to values of related shares, but they are traded
and settled independently of the underlying share.
Several international banks issue GDRs, such as JPMorgan Chase, Citigroup, Deutsche Bank, The Bank
of New York Mellon. GDRs are often listed in the Frankfurt Stock Exchange, Luxembourg Stock
Exchange and in the London Stock Exchange, where they are traded on the International Order Book
(IOB). Normally 1 GDR = 10 Shares, but not always. It is a negotiable instrument which is
denominated in some freely convertible currency. It is a negotiable certificate denominated in US
dollars which represents a non-US Company's publicly traded local equity.
CHARACTERISTICS OF GDRS:
1.it is an unsecured security 2.a fixed rate of interest is paid on it 3.it may be converted into number
of shares 4.interest and redemption price is public in foreign agency 5.it is listed and traded in the
Global Depository Receipt is not a very different financial instrument, from that of ADR. In fact if the
Indian Company which has issued GDRs in the American market wishes to further extend it to other
developed and advanced countries such as Europe, then they can sell these ADRs to the public of
Europe and the same would be named as GDR.
Reverse Mortgage Loan
Reverse mortgage is a financial product that enables senior citizens (60 +) who own a house to
mortgage their property with a lender and convert part of the home equity into tax-free income
without having to sell the house.
Instead of you making monthly payments to a lender, as with a regular loan, the lender makes
payments to you. Multiple options are available for repayment of the loan in lumpsum at the end of
the loan term. Maximum period of loan is of twenty years. The loan is not required to be serviced as
long as the borrower is alive and in occupation of the property. On the borrower?s death, the loan is
repaid through sale of property.
Qualifications for reverse mortgage eligibility:
Should be a Senior Citizen of India above 60 Years of age.
Married Couples will be eligible as joint borrowers provided one of them being above 60
years of age and other not below 55 years of age.
Benefits of a reverse mortgage:
It aims at partially meeting the financial needs of senior citizens without selling the property and
enables recurring funds inflows to the senior citizens during their life time.
After the death of the senior citizen, the surviving spouse can continue to occupy the property till
Reverse Mortgage Loan - Salient Features
Reverse Mortgage Loan (RML) enables a Senior Citizen i.e. above the age of 60 years to
avail of periodical payments from a lender against the mortgage of his/her house while
remaining the owner and occupying the house.
The Senior Citizen borrower is not required to service the loan during his/her lifetime
and therefore does not make monthly repayments of principal and interest to the
RMLs are extended by Primary Lending Institutions (PLIs) viz. Scheduled Banks and
Housing Finance Companies (HFCs) registered with NHB.
The loan amount is dependent on the value of house property as assessed by the lender,
age of the borrower(s) and prevalent interest rate.
The loan can be provided through monthly/quarterly/half-yearly/annual disbursements
or a lump-sum or as a committed line of credit or as a combination of the three.
The maximum period of the loan is 20 years.
(The maximum period over which the payments can be made to the reverse mortgage
The loan amount may be used by the Senior Citizen borrower for varied purposes
including up-gradation/ renovation of residential property, medical exigencies, etc.
However, use of RML for speculative, trading and business purposes is not permissible.
Valuation of the residential property would be done at such frequency and intervals as
decided by the reverse mortgage lender, which in any case shall be at least once every
The quantum of loan may undergo revisions based on such re-valuation of property at
the discretion of the lender.
The borrower(s) will continue to use the residential property as his/her/their primary
residence till he/she/they is/are alive, or permanently move out of the property, or
cease to use the property as permanent primary residence.
The lender will have limited recourse i.e. only to the mortgaged property in respect of
the RML extended to the borrower.
All reverse mortgage loan products are expected to carry a clear and transparent ‘no
negative equity’ or ‘non-recourse’ guarantee. That is, the Borrower(s) will never owe
more than the net realizable value of their property, provided the terms and conditions
of the loan have been met.
On the borrower’s death or on the borrower leaving the house property permanently,
the loan is repaid along with accumulated interest, through sale of the house property.
The borrower(s)/heir(s) can also repay the loan with accumulated interest and have the
mortgage released without resorting to sale of the property.
The borrower(s) or his/her heirs also have the option of prepaying the loan at any time
during the loan tenor or later, without any prepayment levy.
The Finance Minister, in paragraph 89 of his speech, while presenting the Union Budget, 2007-08,
had announced that the National Housing Bank (NHB) will introduce a reverse mortgage scheme for
In the context of the aforesaid scheme, it was necessary to resolve the tax issues arising there-from.
The first issue is whether mortgage of property for obtaining a loan under the reverse mortgage
scheme is transfer within the meaning of the Income-tax Act thereby giving rise to capital gains.
Section 2(47) of the Income-tax Act provides an inclusive definition of ‘transfer’. Further, ‘transfer’
within the meaning of the Transfer of Properties Act includes some types of mortgage. Therefore, a
mortgage of property, in certain cases, is a transfer within the meaning of section 2(47) of the
Income-tax Act. Consequently, any gain arising upon mortgage of a property may give rise to capital
gains under section 45 of the Income-tax Act. However, in the context of a reverse mortgage, the
intention is to secure a stream of cash flow against the mortgage of a residential house and not to
alienate the property.
A new clause (xvi) in section 47 of the Income-tax Act, 1961 has been inserted to provide that any
transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by
the Central Government shall not be regarded as a transfer.
The second issue is whether the loan, either in lump sum or in instalment, received under a reverse
mortgage scheme amounts to income. Receipt of such loan is in the nature of a capital receipt.
Section 10 of the Income tax Act, 1961 has been amended to provide that any amount received by
an individual as a loan, either in lump-sum or in installment, in a transaction of reverse mortgage
referred to in clause (xvi) of Section 47 of the Income-tax act shall not be included in total income.
A borrower, under a reverse mortgage scheme, shall, however, be liable to income tax (in the nature
of tax on capital gains) only at the point of alienation of the mortgaged property by the mortgagee
for the purposes of recovering the loan.
Equity Oriented Fund
Any mutual fund must have at least 65% of its net assets in equities/stocks to qualify as an equity-
oriented mutual fund Only funds with 65 per cent of their corpus invested in equities will now be
recognized as equity-oriented funds,This means that balanced funds that invest less than 65 per cent
of their assets in equities will not reap the benefits of concessional short-term capital gains tax or
exemption from long-term capital gains tax.
Equity oriented fund means:- a fund which satisfies the following;
(1) the investible funds are invested by way of equity shares in domestic companies to the extent of
more than 65% of the total proceeds of such fund, and
(2) the fund has been set up under a scheme of mutual fund specified in section 10(23D).